Robert Gottliebsen (“Gotti”) has obviously gotten off the phone with his mate, “Highrise” Harry Triguboff, who is worried sales of his Meriton Apartments will slow once the Government implements its $5,000 application fee on foreign buyers and tightens rules around significant investor visa’s (SIVs) investing in Australian real estate. From Business Spectator:
…in less than two weeks, the new [apartment] development rate will come to a sudden halt, so that by around the end of 2016, or election time, we are going to see a big fall in apartment development coincide with the cessation of motor making in Australia. Almost certainly this will result in a significant rise in unemployment…
At the moment we have an unprecedented apartment construction boom in Melbourne and Sydney. That boom is being driven by direct individual Asian buyers and by major fund pools funded by those seeking Australian visas…
Take it away and you will have a very different economy where unemployment is much higher…
The Government is pushing more Asian and other visa application investment into private equity funds providing start-up activities. This is a desirable objective, albeit a very high-risk one. The problem is that we have huge capital requirements to fund the envisaged population increases. It has to come from overseas.
Can we cut out the middle man and just get Highrise Harry to write directly? It would surely be cheaper for Rupert Murdoch.
What Gotti is proposing: allowing a never-ending flood of foreign money into Australian real estate is not a solution to Australia’s economic woes, but just another giant can kick.
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Even if Gotti was successful, and the Government left open the floodgates, the corresponding expansion of supply would ultimately burst the housing bubble, not support it.
If current high rates of construction are maintained for longer, then rents and house values would inevitably come under increasing pressure as the flow of new supply competes with the existing housing stock. This would bring with it an earlier end to the price boom and sow the seeds of a more serious housing/economic downturn.
Sure, employment would be supported in the short-term, but we should not kid ourselves that Chinese property investment represents a sustainable source of jobs and growth for the Australian economy. Like all investment/construction booms it will end, leaving a big void.
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Rather than seeking a sugar hit from Chinese investment, Australia’s policy makers should instead be pursuing fundamental micro-economic (structural) reforms to the economy and tax system, along with a real depreciation of the currency, aimed at boosting both productivity and competitiveness.
Moreover, if Australian authorities want to engineer a sustainable construction uplift, they should tackle the myriad of supply-side constraints that prevent affordable housing from being built, force-up land prices, and killing productivity in the process.
More broadly, Gotti’s ongoing scaremongering over the modest new charges on foreign applications lacks credibility, and reads like rent-seeking lobbying for his mate, Harry Triguboff.
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Taxing foreigners for housing makes sense precisely because it boosts the welfare of Australian residents, and if anything should be extended to land taxes. As noted by the Australian Treasury recently with regards to a broad-based land tax:
The net transfer of income between foreign and domestic households raises welfare (Chart 28). As detailed above, the total foreign ownership share of factor income from land is estimated to be around 10 per cent. Consistent with that, welfare improves by 10 cents per dollar of net revenue raised. In other words, the broad based land tax change implies a loss of income to the domestic household of 90 cents, while the lump sum transfer increases their income by one dollar, which implies a net income gain of 10 cents.
If Australia is to continue selling-off its homes/land to foreigners, the least it can do is ensure that it captures more of the rents through the taxation system, thus ensuring that more revenue is available to fund the health, education and infrastructure needs of its citizens.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
